QBE says higher than expected catastrophe costs have introduced “some risk” to its full year outlook, with the claims assumption expected to exceed the allowance given continuing elevated peril activity.

The company today raised its catastrophe claims assumption to $US1.06 billion ($1.59 billion) and flagged that it expects to strengthen its long-tail reserves in the second half due to inflation, while it will benefit from court decisions related to covid-related business interruption insurance.

The raised catastrophe assumption exceeds this year’s $US962 million ($1.44 billion) allowance. The net cost of catastrophe claims was $US905 million ($1.36 billion) last year.

“Challenging operating conditions have persisted into the second half, and while performance remains resilient across many facets of our business, higher than expected catastrophe costs have introduced some risk to our original full-year outlook,” QBE said in a performance update today.

The insurer continues to expect constant current currency gross written premium growth of around 10% and a “supportive” rate environment continuing into next year, and now expects a combined operating ratio of around 94%, excluding the impact of the Australian pricing promise review.

The group says trends and observations around claims inflation remain similar to those outlined at the first half result and it continues to achieve rate increases at or above inflation in most classes.

“Despite aggressive central bank action over recent months, risks associated with the persistency of inflation remain elevated, and QBE expects to strengthen long tail reserves in the second half to build resilience for a more prolonged inflationary environment,” it said.

“The impact will be broadly offset by the release of covid risk margin, where residual risk associated with covid business interruption claims has reduced following recent legal decisions.”

Catastrophe costs for the year to October totalled $US880 million ($1.32 billion), including $US75 million ($112 million) from the Russia and Ukraine conflict and $US805 million ($1.21 billion) for natural disasters, with the allowance for November and December now around $US180 million ($270 million).